Publishing outsourcing-white-paper

PUBLISHING OUTSOURCING –
A White Paper on Current Challenges and
Issues with Publishers and Offshore Providers
The Sourcing Industry Blueprint 2.0
February 2013 | Phil Fersht,Tony Filippone
http://www.hfsresearch.com/The-Sourcing-Industry-Blueprint-2-0
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ValueNotes
Data to Decisions...

Publishing Outsourcing Services: The Buyer
Publishing Outsourcing Services: Moving up the Value Chain
Publishing Outsourcing Services: The Inhibitors
Publishing Outsourcing:Demand for Services: The ROI of Outsourcing
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TABLE OF CONTENTS
Exhibit 1: Top 15 Publisher's Revenue
Exhibit 2: Perceived Challenges of Publishers
Exhibit 3: Mitigating ChallengesThrough Outsourcing
Exhibit 4: Current State of Outsource/Offshore Services
Exhibit 5: Offshore Content Services
Exhibit 6: Design Services by Segment
Exhibit 7: Technology Services by Segment
Exhibit 8: Areas Of Improvement For Service Providers
Exhibit 9: Buyer Outsourcing Outlook
Exhibit 10: Preferred Outsourcing Destinations
Exhibit 11: ProclivityTo Outsource by Service Areas
Exhibit 12: Cost Savings – Overall Buyer Perceptions
Exhibit 13: Buyer Expectations from Service Providers
TABLE OF EXHIBITS
Firstsource © 2013 | Confidential www.firstsource.com
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OUTSOURCED PUBLISHING SERVICES:
An Introduction
This white paper is a four-part series about outsourced
publishing services (OPS) from ValueNotes and Firstsource.
The individual reports were initially released
over a period of several months in 2012. All of
the reports are combined here with some
additional comments and insights.These papers
highlight challenging and controversial issues
facing outsourcing publishing services, and are
based on extensive research and interviews with publishers
around the world between 2010 and 2012.The study has been
conducted by ValueNotes and Firstsource.These articles are
intended for both buyers (publishers) and service providers,
and focus predominantly on challenges and concerns for
both groups that are often not seen in other professional or
public forums.
Please make a note that the focus in this lengthy white paper
is on the factual issues in the OPS industry not often seen in
public discussions, but often discussed in private
conversations. This analysis is not for sale or
supported with advertising by publishers or
offshore providers, so there is no hidden agenda to
support. We also provide key highlights in the
margin about topics that are of particular
importance. Also, please note that we have consistently
stressed the importance of cultural issues, and although this
may seem repetitive at times, the emphasis is intentional and
should be taken into careful consideration. In the final analysis,
outsourcing in the publishing industry, as in any industry, is as
much about dealing with cultural issues as about sales and
profits.
An Overview
of Outsourced
Publishing
Services
The Buyer
Moving Up
The Value
Chain
The
Inhibitors
Demand for
services and
ROI
Source: ValueNotes Research
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“When outsourcing
publishing services,
cultural issues cannot
be underemphasized”.
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The first part is primarily an overview of the global publishing
market with an emphasis on cost challenges as well as
growth in the outsourcing market in general.The second part
focuses mainly on the publishing value chain and the
different offshore services offered as well as some of the
issues that publishers find to be the most challenging with
offshore work. Also, we highlight some of the “taboos” of
outsourced publishing along with a presentation that was
showcased at the Frankfurt Bookfair in October 2011, and a
questionnaire that will be used to fuel further research for an
updated report in . See the link here for those interested
in participating in current research in this industry. The third
part focuses on some of the key challenges and inhibitors to
growth in the outsourced publishing services market, the
importance of service providers delivering more value, as
well as the concept of a collaborative “partnership” with
buyers and providers.The fourth and final part deals with the
actual demand for services as well as some of the challenges
associated with publishers' expectations and the importance
of a differentiated branding statement with providers.
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The Buyer
This part of the white paper presents an overview of the
global publishing market with an emphasis on cost
challenges, as well as on the growth of the outsourcing
market. The publishing industry is especially top-heavy—a
few media giants own publishing companies that generate a
significant proportion of the English-language publishing
market. Of the estimated $280 billion in revenues, the top 50
publishers generate in excess of $65 billion, close to 33% of
the revenues. These companies often have multiple
publishing houses that operate in numerous segments and in
varying geographies, and generally represent the largest
percentage of the offshore industry in annual revenue.
The Top Publishers
The top-ranking publishers have been affected very negatively by the severe economic crisis from 2008 through 2012 with
regard to both volume and value of business.The following exhibit gives approximate revenues for theyears 2009 and 2010.
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Exhibit 1:Top 15 Publishers' Revenues for theYears 2009 and 2010
Thomson Reuters Canada
Lagardère Publishing/
Hachette Livre France Bertelsmann Germany
Reed Elsevier UK/NL/USA Pearson UK McGraw-Hill Education USA
Cengage Learning Canada/USA Scholastic Corp. USA Wiley USA
De Agostini Editore Italy Wolters Kluwer The Netherlands Holtzbrinck Germany
Source:ValueNotesResearch.
Figures are in USD million | 2009 2010
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Publishers based in Germany and the USA account for a
majority of the top 50 publishers in the world. These
publishers have a historically rich tradition of
publishing content over a considerable time
period, often for as long as 100 years. Although
publishers are adjusting to the new economic
environment, the recovery is slower than
expected. The small revenue growth for most
publishers is often attributed to an overexposed
print sales model that was adversely impacted by
the global economic crisis. It is interesting to note that a
majority that have experienced marginal or even negative
revenue growth are from the USA.This is due to the severity
and breadth of the economic decline that has also affected the
stock market and real estate industry. Furthermore, unusually
high unemployment, especially underemployment, was a
trend in 2011 and will probably continue, although
with some improvement well into 2012–2013.
Magazine publishing, especially, has seen some
harsh economic realities as advertising dollars,
especially for print media, have experienced some
of the most severe declines. This is true with
consumer magazines and even more so with regional or city
newspapers. Magazine and newspaper publishers have
historically had a significant reliance on print advertising, and
have often been the first companies affected negatively in a
prolonged economic decline. The traditional advertising
model for print, especially for city newspapers, has been
impacted dramatically by the meteoric growth of websites,
such as Craig's List, and many others, that offer free classified
advertising by city as well as sites that offer more current
news on the web for free.
Academic publishers, on the other hand, especially in higher
education, have been suffering for some time with price
points that have often become inelastic. Many students are
not purchasing new textbooks these days. Also, used
textbooks have had a dramatic impact on academic
publishing over the last decade, where it is not uncommon to
have price points in excess of $100 for a general education
course at the freshman or sophomore level. Consequently,
academic publishers and authors do not generate any
revenue from used textbooks. Publishers have attempted to
combat the used textbook market with shorter revision cycles
even though such revisions often do not add much value to
the content—a topic that has been widely commented on by
many in the academic publishing market.
Aggressive print business models have often meant
overexposure to economic risks. Reader's Digest, and many
others, for example, declared bankruptcy on account of
significant debt as well as a change in consumer reading
habits. Reader's Digest incurred significant losses
(that resulted in more debt) due to a frail business
model that faced significant pressure when
companies and consumers cut back spending as
well as advertising. On the other hand, The
Christian Science Monitor, and Newsweek very
recently, as well as other major magazines, have
decided to produce a digital version only. In
addition, many other magazines are considering such digital-
only publishing models to cut costs, and potentially improve
advertising.
Such revenue and cost challenges are typical to the
publishing industry, and have been more dramatic and
prolonged because of the severity and length of
the global recession. Also, an equally important
challenge is the dramatic shift to digital initiatives
that have often made the economic adjustment
even more challenging. While there is some
variance across segments, the publishing industry
as a whole has experienced a prolonged negative
impact due to the global economic crisis, and it is quite
evident that cost pressures are often severe.
In the wake of this crisis,ValueNotes conducted a survey,“The
State of Outsourcing in the Publishing Industry”, in that
provides more insights to challenges and issues that the
publishing industry is experiencing. This survey received a
significant amount of attention on social media sites, such as
LinkedIn, with its emphasis on the hidden “taboos” of
outsourced publishing. Topics that publishers are often
reluctant to discuss in public were included. Please refer to the
Bookfair 2011 presentation from Firstsource about
this “taboo” topic, as well as the research questionnaire that
we are developing, to garner insights into what publishers
actually think of outsourcing in 2012–2013.
2009
Frankfurt
Challenges and Issues
Clearly, most publishers are grappling with cost and margin
pressures.The economic recession, coupled with rising labor
and production costs, have been detrimental to the entire
industry, especially in the USA. With print revenues also on
the decline, publishers have had to look for alternatives, such
as increasing digital initiatives, and relying on offshore service
providers, for significantly lower costs. In the publisher survey
conducted by ValueNotes in 2010, more than half of the
respondents indicated cost pressures as the major challenge
facing the publishing industry. The exhibit below highlights
the various challenges experienced by the industry.
“The economic
downturn has had a
more negative impact
on US publishers than
many others”.
“Publishers who have
relied heavily on print
advertising dollars have
often struggled more
than other publishers”.
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Exhibit 2: Perceived Challenges of Publishers
Manageable challenge Not a challengeKey challenge
27%
37%36%37% 43%
20%
17%
49%
39%
13%
47%39%
19%
45%
36%
12%
54%
34%
Diversifying into
new areas of business
Value addition within
current offerings
Adapting to new
technology
Addressing new
geographies
Cost / Margin
pressures
Lack of in-house
Capabilities
Source:PublishersandOutsourcing:Willoutsourcingincrease?2010|ValueNotesResearch.
The publishing industry is quickly moving to greater digital
initiatives, as discussed earlier. This is probably the most
evolutionary change in the industry since the invention of the
printing press in the 1400s. It is also proving to be the biggest
challenge for many publishers. Also, consumer preferences
are evolving in how they access and use content in different
formats and devices. Equally important, increasing global
competition is forcing most publishers to diversify revenue
sources and retain consumers by adding value to current
offerings. Given the growth of online and digital content,
companies are attempting to implement a rapid transition
from a print to a digital content business model. Most
publishers believe that they have access to quality resources,
and over a third (36%) of the respondents said that the lack of
in-house capabilities is not a major challenge. In addition,
they further stated that cost is a major concern if those
resources are used onshore, especially in the USA.
While cost pressures are a challenge for respondents across
all geographies, this is more the case in the USA and the UK.
The US market, especially, has faced severe cost pressures on
account of the depth and breadth of the economic collapse.
Asia is showing significant aspirations of addressing the
global publishing market. Diversifying and addressing new
markets are the two key challenges that publishers from Asia
face. The type of challenges faced by geography is also an
indication of the maturity level of the publishers. Responses
from Asia indicate that they are looking to grow and expand
across new markets since these publishers are often smaller
and more entrepreneurial than in Europe and the USA, and
their costs are often generally much lower than in other
geographies.
Small publishers (less than 1,000 employees) are keen to
diversify and add value to what they are currently offering,
but are often confused about how to best achieve this, and at
the same time remain competitive. Cost and diversification
are two areas of concern. Currently, technology requirements
and the need to address new geographies are not necessarily
on the priority list. However, going forward, implementing
new technology is likely to play a major role in improving
margins, and publishers will have to focus aggressively on
technology initiatives within the next two years to remain
competitive. The critical, strategic challenge is that in-house
technology implementation is often very capital intensive.
Consequently, publishers have to look at external sources,
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usually offshore, to manage and implement the technology
and related infrastructure. Medium to large publishers
(employees more than 1,000) have already been
investing in technology for some time. Of
particular interest is software as a service (SAAS)
and cloud-based solutions since these services
often allow access to innovative technology at a
much lower monthly cost as opposed to the
purchase of the technology.
For the medium to large publishers, cost and margin
pressures are the biggest cause for concern.This segment has
been outsourcing to offshore companies for some time, and
this is illustrated with the low response rate about the lack of
access to external services and resources. New geographies,
technologies, and diversifying into new business markets are
not pressing issues for the larger publishers, but represent
some concern to larger publishers who have not been as
technically innovative as others. However, adding value to
print and digital content to enhance the consumer experience
is a significant focus area irrespective of the publisher's size.
Of particular importance, there is an increasing demand for
digital content to be more than just a mirror copy of the paper
product especially with EPUB 3 and other HTML 5.0-based
platforms. Many respondents believe that publishing may
have a fate similar to that of the music industry, which has
been severely hampered by free downloads and the dramatic
decrease in CD sales. The often cited irony of consumer
behavior is that when content goes digital, it is expected to be
either free or close to free, certainly a lot less expensive than
the print counterpart. Many comment on this trend now with
e-books in 2012–2013 where pricing is generally at least 50%
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less than the paper counterpart, and appears to continue to
decline as noted in many studies in 2013 with the meteoric
rise in self-publishing. Another by-product of the
eBook market for publishers is that more and
more authors are self-publishing, and selling their
books from their own websites, totally bypassing
the publisher as well as the traditional distribution
and marketing channel, which further
compounds the challenges for book retailers
(e.g., Borders went out of business in 2012), and threatening
big players like Barnes & Noble as well.
Consequently, with value enhancements to digital publishing
initiatives being a major concern for publishers, providers,
irrespective of company size, need to strategically view how
they can deliver added content value while maintaining
profitable pricing for publishers. The strategic question for
publishers and providers, then, becomes: “How can I
enhance the value of my digital content and maintain
competitive, profitable pricing?
“Digital content needs
to be more than just a
mirror copy of the print
version”.
Offshore Services: Critical to Challenge Mitigation
Large publishers have been outsourcing various services for
some time, especially in the scientific, technical, and medical
(STM) segment, which is quite mature with offshore services.
This market segment, especially the major STM publishers,
such as Wiley-Blackwell, Elsevier, and Springer-Verlag, has
been outsourcing work offshore since the 1980s. During the
survey, buyers indicated the challenges that can be mitigated
by outsourcing. This is based on a correlation between
responses to perceived challenges and whether outsourcing
can mitigate such challenges.
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Exhibit 3: Mitigating Challenges through Outsourcing
Publishers are recognizing the benefits of outsourcing
services, technology, and other aspects of their operations to
address cost and resource issues. Because in-house
resources are expensive, especially in the USA
and Europe, outsourcing primarily offers cost and
labor arbitrage benefits. Most publishers
acknowledge the potency of outsourcing as a
solution to in-house resource constraints,
especially technology. However, the issue of value
addition and innovation is still not being
effectively addressed by outsourcing, which is often a serious
strategic concern for many publishers and providers. While
some market segments still need to mature in terms of
outsourcing, the publishing industry as a whole does not
consider outsourcing as an effective means to add value and
innovation to their publishing program, at least at the present
time. This is a critical challenge confronting the industry.
Publishers, consequently, need to be very clear about their
expectations with the value of outsourcing beyond pricing.
And service providers need to learn to provide more value in
their service offering that is above and beyond
pricing.
One area that publishers are looking to outsource
is complex digitization. More and more
consumers are moving toward digital reading
devices, a trend especially prevalent from the
second quarter of 2011, as indicated by the dramatic increase
in sales of the Apple iPad. E-books have also seen a
concomitant meteoric increase. Respondents are very much
in favor of outsourcing most of the tasks related to e-
publishing, especially conversion processes with back list
titles for e-books and other backend services for making
content compatible across different devices and formats.
Manageable challengeKey challenge
Diversifying into
new areas of business
17%
13%
Value addition within
current offerings
19%
10%
Adapting to new
technology
19% 19%
Addressing new
geographies
10%
12%
Cost/ Margin
Pressures
26%
22%
Lack of in house
Capabilities
24%
13%
Source: Publishers and Outsourcing: Will outsourcing increase?, 2010 | ValueNotes Research
“Innovation is often not
found in the
publishing outsourcing
relationship”.
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Outsourcing Spend across Segments to Increase
The overall revenues from outsourcing publishing services
(prepress) to Asian countries (India, the
Philippines, Vietnam, China, and Sri Lanka) was
approximately $780 million in 2008.
India's revenue from the OPS industry, which
includes the STM, educational, legal, and other
segments (corporate, magazines, etc.) stood at
$660 million in 2008, clearly the lion's share of the market.
ValueNotes' research on the industry estimates the revenue
growth to have crossed $1 billion in 2011, and it may easily
have reached $1.2+ billion in 2012. However, one of the
respondents mentioned that with “new media” services,
there was a potential for 50% of the services to be outsourced
in the next fewyears.“New media” incorporates a diverse set
of multimedia enhancements to content, especially with the
EPUB 3 standard for e-books as well as animation and
modeling, and 3D applications.This new e-book standard is
one of the most dramatic opportunities for publishers to
incorporate cutting-edge media technologies to enhance the
value addition of digital content over print.
Traditional publishers have always relied on outsourcing as a
critical aspect of the publishing business, but not
necessarily offshore. For example, most sub-
segments in the industry have relied on external
sources—especially freelance writers and editors,
either onshore or offshore—for the creation of
content. Over the last few decades, publishers
have continued to increase outsourcing at double-digit levels.
Typically, such publishers will outsource production, some
editorial services, design, illustration, printing, and so on.The
true potential of the market remains to be tapped especially
as “new media” enhancements become more pivotal for all
publishers in 2013.
The next part of this white paper will cover specific offshore
services and challenges, as well as why it is important for
offshore service providers to move up the value chain and
provide more sophisticated and innovative services to
publishers.
India is the most
popular destination for
outsourced publishing
services"
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Moving up the Value Chain
This section focuses on some of the core challenges in the
OPS industry. We discuss the myriad issues that offshore
service providers have to contend with in
moving up the value chain, and what they can
develop and provide to improve their market
position. We believe this value addition is a
strategic part of the offshore service matrix, since
many publishers often perceive most offshore
services as being highly commoditized with very
little differentiation other than pricing. This perception is a
major challenge in the market for both buyers and providers,
especially when trying to decide on a new service provider.
An equally important issue is how offshore
service providers try to market and brand their
services amidst a plethora of competitors.One of
the critical points that needs clarity is whether
buyers and service providers need to move the
industry away from “buying on price.” There is
considerable controversy and debate on this issue that is not
commented on at length in public, but needs a lot of
The maturity of outsourced services varies significantly by
market segment, as we stated in the first section. This
variance is the result of significant levels of subjectivity and
clarity.
complexity in the offshore publishing process, depending on
the nature of the publishing subprocesses. For example,
copy editing of trade books for the consumer
market is rarely outsourced offshore, and even if it
is, most of it is purely mechanical or automated
with software tools and is rarely performed
manually. Most fiction, especially literary fiction, is
notoriously difficult to edit and requires
considerable attention, as well asyears of editorial
experience. Many refer to this as “developmental editing”,
and it requires considerable editorial skills and a keen
understanding of the nuances of language, as well as subject
matter expertise.The combination of these skills is
not easily found offshore, except in rare, isolated
cases. Furthermore, it is not easily scalable when
dealing with larger volumes.
Current State of Outsourcing Services
The following exhibit provides more information on various
publishing services and whether they are being outsourced
offshore.
Exhibit 4: Current State of Outsourced/Offshore Services
CONTENT
SERVICE SUBSERVICE OUTSOURCE OFFSHORE
Authoring
Selection
Content Acquisition
Tagging
Language editing
Mechanical editing
Conceptual Indexing
Section indexing
Keyword indexing
Subject indexing
Author indexing
Fact and data checking
Content aggregation
Content Creation
Copyediting
Indexing
Developmental Editing
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“Most publishing
outsourcing services are
highly commoditized, so
providers need to be
especially conscious of
providing value”.
“Editing services are
especially problematic
when outsourced
offshore”.
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Specialist Editing
DESIGN Graphics Editing Color editing
Resizing
Original Design Concept note
Drawing of illustration
Themed illustrations
Photo Research Copyright checking
Cost checking
Permissions
Art Research &
Commissioning
Copyright issues
PRE-PRESS Editorial Layout
Composition
Template creation
Generating stylesheet
Proofing page
Proofreading
Author liasoning
Project management
Conversions XML first
XML at end
Print deliverables
Ad Layout Concept note
Layout and design
OTHERS Project Management
Distribution/Subscription
Management
Ad Sales & Marketing
Translation
Adaptation
Abstracting
CONTENT
SERVICE SUBSERVICE OUTSOURCE OFFSHORE
Plagiarism check
Specialist Editing
Précis writing
Keyword check
Source: ValueNotes Research.
Many publishing services can be outsourced to offshore
providers as long as the service provider understands the
issues of providing value beyond the standardized services.
However, buyers are often reluctant about outsourcing certain
services beyond those that are highly standardized, such as
composition, XML workflows, and basic design. Therefore,
volumes have not picked up significantly with many higher-
value services. Highly standardized services are ideal for
outsourcing offshore. As noted, finer levels of editing usually
associated with literary fiction or nonfiction are usually not
outsourced; same is the case with the more complex, creative
design and illustration services that often require a deeper
understanding of culture and problem solving. Quality issues
and the inability to address cultural nuances are the major
hurdles with these services. The English language is
notoriously subtle at higher levels of literature, as opposed to
mass market fiction, and editing skill sets required by offshore
service providers are often quite rare at this higher level.
The following sections discuss the maturity levels across
various services that are offshore. Publishers also
differ on what they will or will not outsource. For instance,
there are some publishers that completely rule out
outsourcing any content creation services, including all facets
outsourced
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Content Services
In content services, providers catering to the STM and
academic markets are much more mature, as noted in the
first section of this whitepaper. This is expected, since STM
publishers used offshore services well before publishers in
other consumer segments, and they have greater experience
with outsourcing services. Most of the top-tier STM
publishers began using offshore services in the early days of
SGML, the father of XML, in the late 1970s and 1980s. Also,
most STM content is not design driven, and lends itself well
to standardized stylesheets, which can be highly automated
with XML, a major issue with offshore work. Consequently,
creative design with STM content is rarely an issue.
The offshore industry is beginning to provide higher-end
content services such as repurposing (customization),
translation, abstracting, content development, testing, and
assessment. While these services are a clear testament that
the industry is moving up the value chain, service providers
often struggle to localize content effectively to meet the
cultural nuances of different geographies. This is often a
pivotal issue with more consumer-oriented content as noted.
The cultural and colloquial barriers have prevented many
segments such as consumer magazines and comic books
from outsourcing since this content is often very design
driven and not as easily automated with XML-first workflows.
The following exhibit highlights certain content creation
services and the likelihood of them being offshored.
SERVICES
Content acquisition
Copyediting
Developmental editing
Data mining
Fact and data checking
Proofreading and collation
Abstracting
Note creation
Content repurposing
Specialist editing
Research and analysis
News/article authoring
Assessments
Localization
Translation
E-learning content
STM/ACADEMIC
High
High
Medium
Negligible
High
High
Medium
Medium
Medium
High
Low
Negligible
NA
Medium
Low
High
LEGAL
Medium
Medium
Low
Low
Low
Medium
Negligible
Negligible
Negligible
Negligible
Low
Low
NA
NA
NA
Low
OTHER
Medium
Low
Medium
Medium
Low
Low
Low
Low
Low
Low
Low
Low
NA
Low
Low
Low
EDUCATIONAL
High
High
Low
Negligible
High
High
Low
Low
Low
High
Low
Low
Low
Medium
Low
High
Exhibit 5: Content Services Provided Offshore
of editing and writing, while there are others that will not
outsource translation.There are certain services that are also
considered as “un-outsourceable” by publishers, for instance,
the finer nuances of marketing, branding, concept creation,
and idea generation, as these require a very fine, sophisticated
understanding of culture and language. This is often an
especially challenging issue with consumer magazines and
newspapers.
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Currently, content services that are outsourced offshore are
from segments that have higher maturity levels such as the
professional, scholarly publishing, and STM segments.Again,
this content is usually not design driven, is often very time-
sensitive, and very standardized, unlike consumer magazines
and other nonprofessional content. Other more subjective or
culturally sensitive segments such as education, magazines,
newspapers, and trade books are not outsourced as much,
although we are seeing some increase in B-to-B magazines.
This is partly due to a significant drop in advertising revenues,
as mentioned in the first section, which has negatively
impacted both newspapers and magazines. For instance, in
2009–2011, many magazines and city newspapers in the
USA—which continue to struggle with the economic
downturn due to a high dependency on advertising—moved
increasingly to online and digital platforms. However, there
are still many quality issues that providers are not able to
address currently, especially with consumer content.
Design Services
Service providers' capabilities in design-related services have
matured over the past few years, but lag behind the level
attained in other content services. Maturity is often found in
the low-level services such as modification of existing
designs, graphics editing, and research with art and
photography. However, there are still some services such as
illustration, original design, photography, and stylistic display
of media that remain underdeveloped.The exhibit below is an
overview of design services that are likely to be outsourced.
Exhibit 6: Design Services- by Segment
SERVICES
Graphics editing
Photo research
Art research and
commissioning
Stylistic display of media
Photography
Drawing of illustrations
Original design
DESCRIPTION
Correction including color,
cropping, resizing
Researching and acquiring
photographs from stock
libraries
Sourcing original
artwork/commissioning
artists to produce
original work
Performing functions
that determine stylistic
display of products
in media
Brief conducting of
original photography
e.g., for medical books
or scientific journals
Make design to a brief
STM/ACADEMIC
High
Medium
Medium
High
Low
High
Medium
EDUCATIONAL
Medium
Low
Low
High
Medium
Medium
Medium
OTHERS
Medium
Low
Low
Low
Low
Low
Low
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“The Philippines is often
viewed as an especially
attractive location for
outsourcing design and
creative services”.
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Increasingly, premedia design services are being handled by
offshore providers in India and the Philippines.The need for
aesthetics is an integral part of publishing, and is
often highly dependent on a sense of culture.
While low-value services are widely available,
high-value services are still at a nascent stage,
and service providers are trying to leverage these
as competitive differentiators. It is important to
note that the Philippines is especially skilled in handling
outsourced design and artistic services, probably due to their
closer cultural affinity to the United States, as compared to
India.This is an important cultural differentiator between India
and the Philippines, and is worth special attention. There is
considerable upside to this type of value-added service in the
Philippines in the short term, and many providers in both
Manila and Cebu have seen significant growth in the last two
years with these services, especially with magazines.
Creative and illustration are services that are quickly gaining
momentum, and several providers are adding
this capability to their service portfolio.
Photography and media display styling are still
driven by cultural issues and are highly
dependent on offshore geography. While these
services require greater project management and
training, they remain relatively untapped. Original
architectural design and graphic capabilities with building
layouts, designs, and advertising are available primarily with
the larger service providers. These premedia services
constitute the highest value addition, and providers are
working toward acquiring these services since they often
demand higher dollars per page or per project, compared to
many other services.
Technology Services
The technology service segment is the most mature in terms
of service provider capabilities. Technology has become a
basic requirement for most publishers and providers of all
sizes and locations invariably adopt the same (or similar)
standards and with regard to software (QuarkXpress, Adobe,
XML, Adobe InDesign, TeX, LaTeX, etc.) and hardware
(dedicated servers, high-bandwidth Internet, FTP, etc.). It is
worth highlighting that technology services are very
standardized, and vary little across geographies; therefore,
such services are highly suitable for offshore work.The exhibit
below highlights those technical services and their chances of
being offshored.
Exhibit 7:Technology Services- by Segment
SERVICES
Tagging and metadata
Classification/link
management
Indexing
Coding
Converting and
formatting content
Quality checks on
format and functionality
DESCRIPTION
e.g., XML tagging
Applying taxonomies/ classification
to content. Validating / updating
hyperlinks, other linking standards
Making a detailed list, usually
alphabetically
Classifying, adding metadata,
specifically coding legal texts/court
transcripts
Formatting content and converting
to different platform
Performing quality control on
formatting and tech related
functionality
STM/ACADEMIC
High
Medium
Medium
NA
High
High
EDUCATIONAL
High
Medium
Medium
NA
High
High
OTHERS
Low
Low
NA
Low
Low
Low
TM
ValueNotes

16
SERVICES
Investigation and
problem resolution
Online services
E-learning tools
DESCRIPTION
Resolving formatting issues,
template and other technology
issues
Making websites maintenance,,
producing digital content
Developing training programs,
tools and resources
STM/ACADEMIC
Medium
Medium
Medium
EDUCATIONAL
Medium
High
Medium
w
OTHERS
Low
Medium
Medium
While most of the services covered in technology are low in
value, some, such as the development of online services,
investigation and problem resolution, e-learning tools, and
others, are of higher value. Large offshore providers offer
most of the basic technical services, if not all, and are often
the hardest to differentiate in terms of quality. Consequently,
they are viewed as being very price sensitive since they often
appear to be commoditized from the publisher's point of
view. Evolving technology capabilities, especially
with“new media”, have helped service providers
gain entry into newer markets. Some have even
expanded into fringe IT services such as
maintaining, migrating, and converting
databases for publishers. Some of the larger
vendors also provide IT services and technology
solutions for publishers and include consulting
as part of their value-added services.
A few providers have also developed proprietary publishing
software as a product offering while others are looking to
monetize their software by spinning them off into off-the-shelf
products. Technology also helps providers automate and
reengineer a variety of processes, thereby reducing costs,
regulating workflow, and improving process
coordination. Equally important, some providers
have also managed to decrease turnaround
times significantly by implementing improved
technology and increasing levels of software
automation to manual tasks.
The publishing industry has seen technology
evolve from value addition to a necessity, especially in the
STM market segment. The key differentiator in terms of
technology will be innovation for internal workflow
management and high-value, tech-enabled products and
services.
Furthermore, innovation is even more critical with the rise of
the digital content market, especially with e-books, since
many publishers are worried about differentiating the value
benefit of an e-Book from its print counterpart, as noted
earlier. Publishers do not want to follow the music industry
with free content, so there has to be a differentiating benefit
with digital formats versus print formats. Some technical
services, such as conversion of legacy content, require
significant technological capabilities with the provider;
however, this service is often perceived as being highly
commoditized and very price sensitive by publishers, so
providers needs to be especially aware of
differentiation to compete effectively.
In our conversations with publishers, we gleaned
that they prefer providers who can offer both
technology and services, often referred to as
“full-service”, since technology is often very
capital intensive when implemented onshore.
While large publishers have the resources to invest, the mid-
to small-sized buyers want to avoid investment in technology
if possible, especially in the USA.
Nevertheless, despite the double-digit annual growth in most
outsourced publishing services over the last decade, there are
many inhibitors or“taboos” with outsourcing. Many of these
taboos are very surprising, but simmer beneath
the surface, and can cause considerable
disenchantment with the outsourcing
relationship. The most obvious “taboos” for
many publishers are the cultural variances in
offshore communication and the inherent
differences between problem-solving styles in
Western and Asian cultures. As noted earlier, this
cannot be underemphasized, but often is. Another major
issue is the lack of innovation or creativity with outsourcing.
“Innovation” is, in real terms, a problem-solving and critical
thinking skill that requires successful communication to be
implemented effectively.
Another more subtle but equally daunting issue is the
generally very poor branding and marketing found with
offshore service providers that, at times, is very baffling for
many in the USA or Europe.
“Technical services are
often the most
commoditized service
with little variance
across most
geographies”.
“Innovation with
outsourcing services is
highly dependent on
culture as well as
problem solving and
critical thinking skills”.
TM
ValueNotes

17
A keen understanding of what“differentiation” means seems
to often escape many very technically astute offshore
providers. On the other hand, and an equally troubling issue,
especially in the USA, is for publishers to focus exclusively on
pricing as if they are shopping at the thrift store for publishing
services, and, then, expecting very high quality. Publishers
will often say in public that “quality” is critical to their content
development and publishing process, but when they interface
independently with the service provider, the quality issue
rarely seems to come up. However, pricing usually does.The
disconnect between “quality” and “pricing” is a thorny issue
when it comes to the subject of outsourcing in publishing.
In the next section, we provide more detailed insights into
these inhibitors that both publishers and providers
experience in the offshore process.
TM
ValueNotes

18
The Inhibitors
This following section discusses some of the challenges
associated with outsourcing publishing services.
Outsourcing in the publishing industry has not come close to
peaking, especially in light of the tidal wave changes with so
many digital initiatives across all publishing
market segments in 2012–2013.
Unfortunately, the distressing facts are obvious
as most publishers are simply not very satisfied
with most outsourcing services: 70+% of
respondents from our 2009 survey clearly
indicated this, and 2–3 years later not much has
changed. This was also evident from the various
conversations we had with publishers after the survey.
One of the interesting parallels is to review the Horses for
Sources (HfS) research on the state of outsourcing 2011
across all industries, just publishing. In this study, too, the
statistics are much the same. About 70% of
respondents are less than satisfied with the
quality of services rendered, excluding pricing.
For those who are interested in the general topic
of outsourcing, Horses for Sources has released
a very insightful report in February 2013 from Phil
Fersht, Tony Filippone, The Sourcing Industry Blueprint 2.0,
which can be found in the following link.
Price seems to be the real value-added benefit currently,
especially since the 2008 global recession. Once pricing as an
not
http://www.hfsresearch.com/The-Sourcing-Industry-Blueprint-2-0.
advantage is excluded, the benefits of outsourcing seem to
drop off a cliff for many publishers.The pricing advantage of
offshore work is clearly a major plus, but ultimately there has
to be more to the outsourcing process than just pricing in
order to avoid a highly commoditized marketplace. There
must be a clearly defined value proposition with
each service provider, and this is a clear
challenge for many publishers. How can a
publisher differentiate the value proposition with
many thousands of providers in Asia and other
geographies?
There is no doubt that the satisfaction level as perceived by
publishers leaves a lot to be desired. While one in five
publishers (20%) indicated high satisfaction levels with
outsourcing, the remaining 80% have indicated medium to
low levels of satisfaction. Another issue is that as the
publisher's experience with outsourcing increases, the
publisher's expectations usually increase as well, and if the
service providers are not able to match these
expectations, the publisher's satisfaction levels
often take a plunge. Consequently, expectation
levels of publishers with their service providers is
a critical issue that needs to be addressed, since
much of the dissatisfaction with offshore
providers seems to revolve around the conflict with pricing
and quality, as is the case in many other outsourcing markets.
To better understand the inhibitors of outsourcing, we asked
publishers to identify the key areas that service providers
need to improve in the exhibit below.
“Most publishers are
not satisfied with the
quality of publishing
outsourcing”.
“Publishing outsourcing
needs to move beyond
the pricing benefit”.
TM
ValueNotes

Lot of improvement Minor areas of improvement Nearing best practices
19
Exhibit 8: Areas of Improvement for Service Providers
Delivery Quality Project
Management
Content Design Pricing
48%
28%
57%
29%
55%
22% 22%
4%
43%
36%
9%
39%
29%
56%
50%
22%
28%
24%
Source:PublishersandOutsourcing:Willoutsourcingincrease?2010|ValueNotes
Quality of services has been cited as one of the critical areas
that needs the most improvement by almost 57% of
respondents. Buyers not satisfied with the quality
of deliverables often need to rework the service
in-house.This, in turn, increases costs, which are
often not calculated in the final ROI of
outsourcing seen in offshore marketing
collateral.The other related issue is consistency in
quality, which is a larger issue. A particularly
problematic issue is that while a simple trial or
sample is of high quality, the same project when scaled up,
over an extended period, is often quite different. In a sense,
quality with outsourcing work is much more of a marathon
than a sprint. This challenge may stem from a lack of
communication, feedback, misalignment of performance
expectations and service provider capabilities,
and so on. Clearly, many publishers struggle to
understand and adapt to the rapid digital
changes needed to keep up with the industry.
Equally important, publishers often desperately
need the offshore service provider to be
extremely proactive, strategic, and not just
tactical. Furthermore, the service provider
should possess the ability to move up the value
chain and the learning curve fast—especially with new
technical services. This is often an unrealistic expectation
considering the blistering pace of change with digital
initiatives in all of publishing over the last 2years.
As noted previously, communication skills with offshore
providers can often be very difficult, especially in India.
Service providers should be encouraged to insure that
anyone in a customer facing conference call be
trained adequately to speak clear and concise
English in order to maintain good relationships
with new and existing customers. Another issue
related to communication skills is the often cited
importance from publishers of having a strong
onshore project manager that interfaces with
them as well as the offshore provider.
Another issue that often comes up in discussions about
“quality” is the issue of provider turnover. “Quality” and
turnover with an offshore provider are often more closely
related than publishers realize. Most Asian countries have
seen an unprecedented boom in their economies with
outsourcing over the last five years. Since
these economies are often growing at double
digits each year, turnover is often a serious
issue as employees gain skills, and move to
another provider with a salary increase.
Unfortunately, when well-trained employees at
a provider leave for another company, there is a
risk of quality and turnaround time challenges
for the publisher. Consequently, publishers should always ask
a provider what their current employee retention rates are,
which can often be a good barometer about quality issues.
Another critical challenge with publishers and offshore
providers is the lack of a collaborative “partnership” where
both parties work as a team. Too often, we see publishers
“Publishers need to
understand that a
simple trial or sample
may not be the best
way to judge the
viability of a new
offshore provider”.
“Publishers need to be
especially cautious of the
employee turnover rate
with any offshore provider
since this often affects
quality and turnaround
time”.
TM
ValueNotes

insisting on impossible deadlines, high levels of
quality with huge increases in volume—very
short term—and reduction in pricing, all of which
can leave the provider frustrated, unmotivated,
and unprofitable. Consequently, publishers and
providers should establish a mutually beneficial
relationship, early on, that ensures long-term
benefits for both parties.
The fragmentation of the offshore service provider's
landscape is another factor that makes it difficult, if not
impossible, for the publisher to decide on a new service
provider who is the “right fit”. This is an issue that publishers
and providers need to realize. There are many offshore
publishing service providers now, given the very low barriers
to entry into this vertical.They are located not just in India, but
the Philippines, China, Vietnam, and Malaysia. Also, near-
shore countries in South and Central America also boast
publishing service providers. Consequently, no publisher
looking to outsource can seriously review all of them, and
come to a logical conclusion as to who is the“right fit”. Due to
the immense commoditization of standard publishing
services, for instance, composition and typesetting, deciding
on the right service provider is much harder. For example,
there are hundreds, if not thousands, of service providers that
offer digital conversion services, with little or no compelling
differentiation other than pricing. This lack of differentiation
among service providers often results in publishers shopping
for price only given that they struggle to discern which service
provider is the “right fit” without spending months with trial
and sample work, which is often very hard to compare in any
case. The loss of control remains another
challenge that makes outsourcing difficult for
many publishers. Being geographically far away
from the service provider, compounded by
significant time differences, communication
issues, and quality problems, often makes
outsourcing extremely difficult, if not impossible,
for many publishers who are already dealing with many other
challenges. Again, as noted, often the biggest challenge for
outsourcing is tasks and functions that require a
comprehensive understanding of very subjective processes
of the publisher's operation that are often culturally driven.
Buyer Trends in Outsourced Publishing Services
In spite of the lower satisfaction levels with outsourcing,
publishers are still looking to increase the volume of
outsourced work in the future. The majority of the
respondents surveyed in the ValueNotes study“Publishers
and Outsourcing: Will Outsourcing Increase?” in
2010 believe that outsourcing will grow. Publishers who
indicated that their companies might increase outsourcing
demonstrate that despite their reservations about the quality
of work, they feel there are potential benefits, and that the
inhibitors can be dealt with successfully.
Overall, almost half of the respondents believe that
outsourcing is likely to grow by at least 25% in the next few
years. A slightly lower number of respondents expect
outsourcing to continue at current levels. The exhibit below
demonstrates such findings:
conducted
Exhibit 9: BuyerTrends in Outsourced Publishing Services
6%
33%
43%
10%
7%
Bring work
back onshore
Continue at
current levels
Increase by
25%
Increase by
25-40%
Increase by
more than 50%
Source: Publishers and Outsourcing: Will outsourcing increase? 2010 | ValueNotes Research.
20
“The low barriers to
entry for offshore
providers in Asia has
caused a huge increase
in the number of
providers”.
TM
ValueNotes

21
An increase in outsourcing levels even by 15–25% expands
the opportunity significantly within the aggregate market.
However, this growth will come more from publishers that
are moderately or highly satisfied with their
service providers. These tend to be large or
multinational publishers with over ten years of a
working relationship with their service providers.
Growth is also expected to come from smaller
companies (those with less than 1,000
employees) and those that are newer to offshore
work. Larger companies, representing a more mature part of
the publisher community, will either continue their current
volume of outsourcing or consider an increase of 25%.
An issue worth noting here is that the increase in outsourcing
among the larger multinational publishers is
more than likely to be with their existing service
providers, not necessarily new service providers.
This is an important distinction, and would
clearly indicate that although the aggregate
market is growing at the top line in volume, the
overall market is very mature and is witnessing
considerable consolidation with providers. Consequently,
major multinational publishers in the USA, and elsewhere,
have often moved from ten to only five service providers in
the past fewyears. In some cases, leading publishers such as
Elsevier, Wiley-Blackwell, Cengage, Springer-Verlag, Taylor
and Francis have even less providers as of 2011–2012.That is a
significant increase in consolidation, which should be noted.
This is an especially important issue for offshore service
providers to consider when they see the market growing, and
where it is growing. Just because the overall market is likely
to grow by 25% does not necessarily mean that publishers
are necessarily open to a new service provider. In fact, just the
opposite is likely to be the case, especially in the USA.
Among all geographies, publishers in the USA seem to
exhibit the most extreme variations of decreasing or
increasing outsourcing. Note that more than 50% are from
the USA. Much of this discrepancy may be due, again, to the
severity of the global economic decline in the USA compared
to other countries since late 2008.This economic decline has
not improved much in 2012, and is not expected to improve
very much in 2013. In comparison, buyers from the UK seem
more cautious with their outsourcing levels, choosing to
either remain mostly at existing levels or increase outsourcing
by 25%.While the USA and the UK have been the most active
buyer markets with most service providers targeting them,
the remaining parts of Europe andAsia represent largely new
markets. Asia is fast emerging as a new market for service
providers although pricing is often more of an
issue there than it is in the USA and the UK.
The volume of outsourced work does not exhibit
tremendous variations by segment. However,
the magazine and newspaper segments are still
more resistant to outsourcing as a strategy.
However, B2B magazines are more open to
considering an offshore provider even though this group has
been very slow to embrace XML workflows as noted in the
annual production surveys in Folio magazine.
This is likely to change considering the
challenges both segments are facing with pivotal
adjustments from print to digital initiatives and
the continuing economic climate adversely
affecting print advertising. However, with online
newspapers becoming more popular as well, the
propensity of this segment to outsource has
certainly increased.
Preferred Outsourcing Destinations
India, the Philippines, and the USA remain preferred
outsourcing destinations for buyers across most segments.
While there are no drastic differences in where buyers
outsource their work, the STM and the academic segments
have a strong preference for India due to their early presence
in this market since the 1980s. STM content is, as stated
earlier, usually not design driven, much more likely to be
standardized and automated with XML, and, consequently,
moved to offshore providers at lower costs. Magazine
publishers often prefer the Philippines, apart from India,
because design-driven content in this geography is often
highly nuanced and there is closer cultural affinity between
the Philippines and the USA. However, the academic market
segment has a preference for India and the USA. Near-shore
outsourcing has grown significantly over the last few years,
especially in Central and South American countries like Costa
Rica and Columbia where the governments are relatively
stable, the time zone difference is negligible, and the cultural
affinity with the USA is higher. See the exhibit below for
preferred outsourcing destinations.
“Growth in the
market is likely to come
from existing providers,
not necessarily from
new providers”.
“Publishers in the USA,
especially, are not as
open to using a new
service provider as
many would like to
believe”.
TM
ValueNotes

22
Exhibit 10: Preferred Outsourcing Destinations
Australia China India Philippines Vietnam Others UK US
19%
9%10%
4%
11%
37%
8%
2%
Source:PublishersandOutsourcing:Willoutsourcingincrease?2010|
ValueNotesResearch.
§
§
§
While a significant proportion of US publishers prefer India,
the choices are quite diverse. From engaging in onshore
business activities within the country to
outsourcing offshore, publishers seem to have a
host of choices with regard to outsourcing
destinations. For instance, newspapers are known
to outsource to other newspaper publishers, since
they are assured that the service provider
understands the business and the daunting
turnaround times.
India is also a preferred destination for buyers in
Europe and Asia, with the Philippines being a distant second.
However, the Philippines has seen a significant percentage
increase in business process outsourcing services including
customer support and call centers, especially in Manila and
Cebu, where this service has recently outpaced call center
services in India.
The preference of an outsourcing destination is highly
dependent on the type of work being outsourced. For
example, India often remains at the forefront of prepress
activities while China is well established as a printing hub.
The Philippines is known for its cultural and language affinity to the
USA, and is often favored for work that requires understanding
cultural nuances often found in more consumer-
oriented content. Again, much of this content is more
design driven, and is usually not STM content.
In conclusion, there are many “inhibitors” to
outsourced publishing, and it is very important for
both publishers and services providers to be
aware of the issues and the market dynamics in
these geographies.
The next section of this whitepaper clarifies the demand for
outsourced publishing services, and reveals issues about the
true ROI of outsourcing, as well as some additional comment
about the important of branding and differentiation in
marketing collateral.
“The Philippines has
seen a significant
increase in publishing
outsourcing services
due to their close
cultural affinity with the
USA especially with
creative services”.
TM
ValueNotes

23
Demand for Services-ROI of Outsourcing
This is the final section of the white paper on outsourced
publishing services from Firstsource and ValueNotes based
on research conducted during 2009–2012. In this section, we
review the issues of demand for services, the ROI of
outsourcing publishing services, and the challenges with
marketing and branding with service providers.
Publishers have been outsourcing production and prepress-
related services for some time now, as noted in earlier
sections, especially in the STM book and journal market.The
responses in the exhibit below indicate which service
publishers are most likely to outsource based on the 2009
research study.These figures have been validated since then.
The following sections shed light on services that are being
outsourced as well as those services where future demand
for outsourcing is most likely to increase.
Exhibit 11: Proclivity to Outsource by Service Area
Content
28%
Design
22%
Production
29%
Distribution
14%
Full Service
7%
Source:PublishersandOutsourcing:Willoutsourcingincrease?2010|
ValueNotesResearch.
As seen from the exhibit, content, design, and production
services constitute 79% of outsourced services.
Demand clearly lies for outsourcing production
(29%), followed by content (28%) and design
(22%). Production has been traditionally
outsourced, since it is often very standardized
across many content formats. Content creation
and design, on the other hand, are two very
“high-value” services that are witnessing
increased demand. However, these two services
require considerable subjective, creative problem solving
from the service provider, as they often require the ability to
discern cultural nuances, which can often be a
significant challenge for the offshore provider
depending on geography.
One of the critical issues worth special mention is
that geography and service offering are often
more tightly related than many publishers
understand, as we have noted previously. Considering how
dynamic the publishing market is now with new
digital services and initiatives, the list above
seems to change monthly. Also, many new
service offerings, especially the development of
mobile applications as well as a more effective
process to handle rights and permissions and
intellectual property, are rapidly evolving. Rights
and permissions is an especially critical function
since publishers need to deploy digital content
now across many formats and geographies.This is a service
area that most publishers, unfortunately, handle very poorly
in the digital world. The service is often very
manual, inefficient, and fraught with daunting
legal risks since publishers often have print rights
and permissions, but not necessarily for digital
content as the many lawsuits over the last few
years indicate. Over the last year, many global
publishers have faced severe legal entanglements
“Cultural and
geographical issues are
always very important
when considering the
geography for offshore
work, and publishers
need to be very aware
of these issues”.
“Providers need to be
especially aware of
providing new service
offerings to remain
competitive”.
TM
ValueNotes

for selling digital content that they do not have the
rights to. Another service offering that lacks
significant coverage from providers is the
incorporation of enhanced metadata withOnix 3.0,
especially with e-books so that such digital content
can be more easily found and purchased.
Additionally, more publishers, especially
multinationals, are also looking at what is called
business process outsourcing (BPO) or back-office
services to handle accounting, customer
management, invoice processing, subscription
management, and many other back-office
functions to further reduce costs. Unfortunately,
most publishing service providers do not offer
these BPO services, so finding the right offshore provider can
prove challenging for the publisher. Again, our advice to
publishers and providers alike is that both groups need to be
very strategic in terms of targeting and developing new value-
added service offerings in order to remain competitive in this
very dynamic industry.
In terms of demand for services by company size, larger
companies (employees over 10,000) have shown a marked
preference for outsourcing across all functional areas.
However, content and design are two areas where demand is
usually high. For mid-sized companies, production is in high
demand. Design, especially with new digital media such as
blackboard applications for the K-12 academic market, HTML
5.0 applications, animation, modeling, e-learning
applications, mobile application development,
enhanced metadata for indexing, and social
media, are service areas where publishers are
often searching for the ”right” offshore service
provider. Since design is very dependent on a
creative perception, it is often a cause for
complaint about “quality”. However, service
providers are increasingly working to improve their
understanding of the “quality” issues with publishers.There
has been some measure of success, although “quality”
complaints with offshore work remain very high for many
publishers.
Furthermore, content and creative design capabilities often
require a significant effort on the part of the provider, and over
longer time frames. Publishers are keen for providers to move
up the value chain when it comes to these as well as other
services, expecting the service provider to be proactive and
anticipate the publisher's need. Providers being proactive and
strategic about market trends is often seen by the publisher as
a very positive value add to a collaborative sourcing
relationship—a pivotal issue for most publishers
grappling with the breathtaking digital changes
in the industry.
One suggestion frequently voiced by publishers
in our research is that service providers need to
send their teams to the onshore publisher's office
frequently, at least once ayear, preferably twice a
year, so that the learning curve is shorter and
communication is improved with face-to-face
meetings. Service providers, on the other hand,
especially the mid to small providers, often find
this travel expense to be a challenge as frequent
onshore visits can have a significant impact on
costs and margins if multiple people travel,
which is often the expectation of the publisher, in
order to increase volume. Most publishers believe that these
onsite visits are very strategic in order to develop a closer
working relationship, especially with services that are not
standardized and require creative judgment, critical thinking,
and problem solving.
24
“Publishers prefer
providers to make more
frequent onsite
meetings, although
providers often find this
difficult due to cost
constraints”.
“More publishers are
looking for back office
service providers
offshore”.
“The real ROI of
is often more
mysterious than
publishers and
providers would like to
admit”.
Cost Savings:What is the Real ROI?
The ROI of outsourced publishing services remains
somewhat of a “black hole” to many publishers and
providers. ValueNotes has produced a recent research study
on the ROI of outsourcing advertising production, which is
worth special , and provides very detailed insight into
this service offshore, and can easily be used with
other services as well.
A majority of publishers (45%) have indicated that
15–25% cost savings with outsourcing is realistic.
Although 25–40% in cost savings is often on the
higher side, it is possible that this set of responses
is probably from seasoned buyers of outsourced
services with ten years or more with the same
provider. The “same” provider for this period of
time is a fundamental indicator of ROI, and should be noted
carefully with publishers interfacing with new providers.
Responses that indicate cost savings greater than 40% usually
represent publishers that have managed to get the maximum
benefit from their providers over extended periods of ten
years or even more with the same provider. The same
provider, again, is key here. A publisher working with the
same provider for tenyears or more is usually a key indicator
of higher cost savings. This is a very important distinction
worth noting especially with smaller publishers. Over this
period of time the publisher and the provider have worked
together to resolve challenges and problems successfully,
and have often established a strong collaborative relationship
on services.
mention
TM
ValueNotes

Publishers often enter into the outsourcing relationship with
very unrealistic expectations of early success and huge cost
savings. Providers also consistently indicate savings in the
range of 40%, which many buyers actually
disagree with, concluding it is much less if they
were to take into consideration the time that is
spent on corrections and onshore project
management, especially in the early stages of the
relationship. Thus, actual cost savings are often
reduced significantly, sometimes by as much as
50%. Most of the challenges with perception in
the cost savings of outsourcing between
publishers and providers may simply be inaccurate
marketing material from providers as well as unrealistic
expectations with publishers. Often, this disconnect is simply
an issue of service providers “overselling” and often “under
delivering”, which we have noted in previous sections here,
and an issue that publishers need to be especially cautious
about. The other issue is that publishers need to do a much
better job of due diligence and governance especially with a
new provider, particularly in the first year of a sourcing
engagement.
Clearly, cost savings is an issue that is especially challenging
in the first year of an outsourcing relationship especially with
a new service provider.This challenge is often a very critical
one that does not often show up in the provider's marketing
material—unfortunately. It should not be a surprise to hear
that senior publishers, who earn up to $100,000 ayear on the
East Coast of the United States, may have to spend time
reviewing and correcting production mistakes made by
individual offshore service providers, who earn $5,000–7,000 a
year. This situation is far more common than many realize,
and should be noted with publishers when
reviewing total cost savings.
Consequently, especially with large multinational
publishers, such a scenario quickly erodes cost
savings since this is often not taken into account,
either by the publisher or by the provider in terms
of the “real ROI” of outsourcing. Special note
should be made of this situation since there are
often many hidden costs with offshore work that are
unexpected. This situation, as one can imagine, often has a
negative impact on the satisfaction levels of publishers with
regard to outsourcing.
In short, realistic planning and setting expectation levels of the
actual ROI of outsourcing are required by both sides of the
outsourcing relationship in the very early stages.
An appropriate assessment of current workflow processes
without outsourcing is also critical so that a valid comparison
can be made with outsourcing. Our recommendation is that
both publishers and providers should spend more time
focusing on this issue and develop reasonable expectations
about the actual cost savings and the level of service,
especially in the firstyear of an outsourcing engagement.
The exhibit below outlines the various responses to total costs
savings from publishers.
25
“Publishers need to be
aware of their current
workflow process before
outsourcing, so that
they have a very clear
comparison when
outsourcing”.
Exhibit 12: Cost Savings- Overall Buyer Perceptions
None 5%
15 - 25% 45%
25 - 40% 22%
> 40% 8%
10 - 15% 25%
Source: Publishers and Outsourcing: Will outsourcing increase? 2010 | ValueNotes Research.
These cost savings also reflect a significant variance in the
type of service outsourced—a critical issue. Complex tasks
and higher-value services tend to affect cost savings the most.
Most publishers have usually spent a considerable degree of
time and effort to increase productivity and enhance efficiency
of their outsourced services. “No cost savings” has been
TM
ValueNotes

26
§
§
For companies with more than 500 million
dollars in revenues, usually large
multinational publishers, 15–25% savings are
often achieved. A significant portion of these
companies also achieve 25–40%. Again, this
could be due to extended interactions with
the same service provider. Publishers of this
size often represent the pioneers of outsourcing and
include such multinationals as Pearson, Macmillan,Wiley-
Blackwell, Gantt, Elsevier, Springer-Verlag, and Informa
(Taylor and Francis).
These companies are often actually moving up the scale
of cost savings: nearly one out of five respondents has
indicated savings of greater than 40%. Most of the higher
cost savings is due to a maturing market, consolidation of
service providers, and outsourcing higher volumes with
specific service providers at a lower price. This is worth
special note. Both publishers and providers need to be
aware of this particular market dynamic. Just because
another provider has seen a significant growth in volume
does not mean that the overall market is growing. It could
very well be that another provider in the same market is
Publishers' Expectations from Providers
Most publishers have been experimenting with outsourcing
for manyyears. Currently, it is rare to find a mid-size publisher
with sales of more than 10 million dollars that has
not outsourced some services. For all publishers,
“quality” has often been the most critical
challenge, and is often very hard to define in a
clear, succinct roadmap of outsourcing with
providers. Many publishers talk about the lack of
“quality”. However, when questioned about the
specifics of this issue, they often have a difficult time defining
what exactly they need to make a particular service quality
acceptable. Consequently, publishers need to spend more
time defining the specifics of outsourcing quality.
Even service providers often state that publishers would rather
agree to pay higher prices than compromise on “quality”. We
see this stated clearly in research. However, publishers often
get too caught up over billing rates and pricing, and need to
more carefully weigh cost with “quality”, which is a delicate
balance. In order to mitigate the risk of outsourcing and
quality, publishers continue to work with multiple providers to
ensure that they maximize their outsourcing strategy although
considerably fewer than they did a fewyears ago.
The exhibit below represents typical publisher expectations:
experienced by some publishers, albeit a small group. Clearly,
there is a great disparity in expectations and the quality of
work delivered. Publishers also need to understand that in the
initial phase of any outsourcing engagement, they need to
spend considerable time and energy articulating their
expectations and ensuring that the provider clearly
understands the workflow process that they need, during
and after the transition phase.
Again, communication is often the key to this process, and, as
noted here, communication processes are heavily influenced
by many cultural issues, which are often daunting to
overcome in the initial phase of outsourcing to a new service
provider. Service providers also need to understand that false
promises early on will only lead to severe challenges later,
and higher levels of dissatisfaction. Also, providers need to
understand this risk with new publishers and acknowledge it
early on in the outsourcing relationship. This allows them to
improve their position with publishers beyond naively
acquiring a new account with large potential sales revenue.
Again, these issues needs to be more strategic, rather than
tactical.There is nothing worse, and more expensive, than for
a publisher and a provider to spend a year or more in a
sourcing relationship only to have it fail.
We also notice that there is a significant disparity in the cost
savings expectations indicated by publishers depending on
the company size:
suffering a severe decline in volume.
Companies with revenues less than 100 million dollars
are experiencing wider fluctuations in cost savings.While
this is dependent on the value of services outsourced,
smaller companies tend to make more mistakes while
outsourcing, especially in the first two years of an
engagement. As outsourcing matures, there will likely be
less deviation in terms of cost savings.
Large publishers reap significant benefits due to the concept
of “scale”, much more so than smaller publishers. This is
because larger volumes of outsourced services allow
publishers to negotiate better pricing with providers. This
pricing difference is reflected in the expected cost saving, and
larger companies tend to save more since they often have
significantly higher annual dollar volume of services available
to outsource. Consequently, smaller publishers should be
especially careful about comparing cost savings with another,
much larger publisher. “Size” matters—a lot—with cost
savings related to outsourcing With increasing outsourcing
experience and maturity, more and more publishers will be
able to strategize and negotiate increased savings on
outsourced services.
§
“Publishers need to
spend a lot more time
and effort defining in
detail what “quality”
means”.
TM
ValueNotes

27
Exhibit 13: Buyer Expectations from Service Providers
§ On time delivery
§ Follow set metrics and SLAs
§ Effective and efficient communication
§ Advance warning in case of delays
§ Consistency in quality
Must have
Vendor speak:
“Buyer expectations increase
with number of years of
experience.They start to expect
100% on time delivery”
§ Vendor inputs to conceptualizing
§ More service options
§ Solution providers instead of process
based vendors
§ Ideas and suggestions
§ Awareness about the changes in the
market
Nice to
have
Example:
Inputs from vendors on
implementing anelearning
model in a large public school–
building prototype and advice
on compatibility of device and
application
As the outsourced publishing services market continues to
grow and become more competitive at the same time, service
providers need to expand their service offering portfolio to
include design and content, though these require more creative
problem-solving skills. In order to do this effectively, providers
also need to become more sensitive to cultural issues, and
improve their communication and problem-solving processes
as noted previously. Publishers also need to be more
cognizant of the delicate balance between pricing and quality,
as well as some of the hidden costs of outsourcing.
Branding and Marketing: Challenges in Outsourcing
In the final analysis, the bottom line with a publisher looking
for a new offshore service provider requires what type of
review process? Unfortunately, the selection process for the
publisher with a new service provider is often very ill defined.
As with any buying decision, much of this process, at least in
the early stages, boils down to a provider's marketing
material, website, and other customer-facing documents such
as testimonials, case studies, or logos from
existing clients.. Effective marketing material from
offshore providers is often very critical in the
process of selecting a new provider. Considering
the number of offshore providers in Asia, this is
often a daunting challenge for publishers. While
most publishers do not expect customer-facing
documents and marketing collateral to set a new
standard in marketing and branding, they do
expect them to be well written, and, at the very least,
intelligible. Unfortunately, many offshore service providers
give very short shrift to marketing material in general, and
branding in particular. In short, branding is a concise and
clear definition of what you do that is clearly differentiated
from what others do, how you stand out, what makes you
special and unique.
Of particular concern is that we often hear from Asian
providers that to display public marketing collateral that
clearly defines their differentiation strategy is confidential and
proprietary, and not for the general public on websites. This
appears to be more of a cultural issue than many realize since
the approach is often just the opposite throughout the USA
and Europe. Of particular note, one of the classic articles on
this topic for outsourcing in general is Deborah Kobs “Buying
Brand”, from Outsourcing Magazine and is well worth a read
for those interested in some of the cultural issues surrounding
branding and marketing in outsourcing. See the link here
http://www.outsourcemagazine.co.uk/articles/item/3621-buying-
brand
In short, many publishers are often looking for reasons to say
“no” to a new outsourcing provider rather than “yes”, and
ineffective marketing material is often a chance for publishers
to say “no” much faster. Consequently, initial customer-
facing documents can often be a deal breaker for
a new outsourcing provider. In a market that has
clearly matured and consolidated with many
commoditized service offerings, and with long-
standing providers having carved out their
niches, a new entrant needs to embrace the fact
that customer-facing marketing material should
clearly spell out a compelling differentiator.
Apart from quality issues, most publishers often complain the
most in private about the lack of effective marketing material
from offshore providers. At the end of the day, publishers are
comparing what one provider says and does in relation to
many others. And many publishers have outsourcing
“Providers need to
spend a lot more time
and effort articulating in
customer facing
documents what their
differentiation statement
is, so that it is very
obvious to publishers”.
TM
ValueNotes

decision makers with degrees in English, and they often have
a keen understanding of the importance of effective
communications skills, which is what successful publishing is
often about. In the early stages of establishing relationships
with new publishers, one of the few influencing issues,
outside of a long-standing personal relationship with an
offshore sales person, is often compelling marketing material.
Many providers have effectively tackled this issue by creating
their marketing and sales collateral in the target market and
geography where the customers are located, either in Europe
or in the USA. These providers think that this is money well
spent to have their marketing material reviewed by a
competent English-language expert before going public with
new clients. Offshore service providers often find it is
relatively easy to sell in their own geography—India or the
Philippines—but find it challenging when selling in Europe or
the UK, and often baffling when selling in the USA.
Understanding that branding and selling are often largely
determined by geography and culture is a critical component
for offshore providers to come to terms with. Our research
shows that compelling customer-facing documents are often
a critical component of success for all providers, and
especially critical for new providers vying to open a new
market in a new geography.
In conclusion, this research from ValueNotes and Firstsource
highlights current issues about the state of the outsourced
publishing services market with a focus on challenges faced
by both publishers and providers.
We have summarized the marginal bullets below as a handy
reminder and reference.
28
§
§
§
§
§
§
“When outsourcing publishing services, cultural issues
cannot be underemphasized”.
“The economic downturn has had a more negative
impact on US publishers than in any other country”.
“Publishers that have relied heavily on print advertising
dollars have struggled more than publishers that have
not”.
“Cost pressures are cited as one of the primary concerns
for all types of publishers”.
“Digital content needs to be more than just a mirror copy
of the print version”.
“STM publishers are often the most experienced with
outsourcing publishing services offshore”.
§
§
§
§
§
§
§
§
§
§
§
§
§
§
“Innovation is a key differentiator for service providers,
especially with the rise of digital content services”.
“India is the most popular destination for outsourcing
publishing services”.
“Most outsourced publishing services are highly
commoditized, so providers need to be especially
conscious of providing added value”.
“Editing services are especially problematic when
outsourced offshore”.
“The Philippines is often viewed as an attractive location
for outsourcing design and creative services”.
“Technical services are often the most commoditized
service with little variance across most geographies”.
“Innovation with outsourcing services is highly
dependent on culture as well as problem-solving and
critical thinking skills”.
“Pricing and quality are two issues that are often in
conflict when outsourcing publishing services”.
“A majority of publishers indicate low to medium levels
of satisfaction with their outsourcing relationship”.
“Outsourced publishing services need to move beyond
the pricing benefit”.
“Publishers need to understand that a simple trial or
sample may not be the best way to judge the viability of
a new offshore provider”.
“Publishers need to be especially cautious of the
employee turnover rate with any offshore provider since
this often affects quality and turnaround time”.
“The low entry barriers for offshore providers in Asia
has resulted in a huge increase in the number of
providers”.
“Growth in the outsourced publishing services market is
likely to come from existing providers, not necessarily
from new providers”.
“Over the last severalyears, US publishers have opted to
consolidate their service provider base, and have also
opted for maturity as a key criterion when culling
providers”.
§
TM
ValueNotes

29
§
§
§
§
§
§
§
§
“Publishers in the USA, especially, are not as open to
using a new service provider as many offshore providers
would like to believe”.
“The magazine market, especially the B2B magazine
market, is beginning to outsource more and more
services offshore”.
“The Philippines has seen a significant increase in the
outsourced publishing services market due to their close
cultural affinity with the USA, especially with creative
services”.
“Cultural and geographical issues are always very
important when considering the location for offshore
work, and publishers need to be very aware of these
issues”.
“Providers need to be especially aware of providing new
service offerings that add value to remain competitive”.
“More publishers are looking for back-office and BPO
service providers offshore”.
“Publishers prefer providers to make more frequent
onsite meetings, although providers often find this
difficult due to cost constraints”.
“The real ROI of outsourced publishing services is often
more mysterious than publishers and providers would
like to admit”.
§
§
§
§
§
§
§
“Publishers and providers need to be especially cautious
of 'over-promising' and then 'under-delivering'.
“Publishers need to be acutely aware of their current
workflow process before outsourcing, so that they have a
very clear comparison when outsourcing”.
“Publishers need to be very cautious when comparing
cost savings with another publisher since costs savings
are heavily influenced by scale and volume”.
“Publishers need to spend a lot more time and effort
defining in detail what 'quality' means in the early stages
of an outsourcing engagement”.
“Providers need to spend a lot more time and effort
articulating in customer-facing documents what their
differentiation statement is, so that it is very obvious to
publishers”.
“ManyAsian providers often think that a public display of
their brand and differentiation message is confidential
and proprietary, and not for the general public”.
“Sales and marketing are often heavily influenced by
geography and culture: selling in India, selling in Europe,
and selling in the USA probably require a different
strategy based on different geographies”.
TM
ValueNotes

For those interested in additional information about either Firstsource orValueNotes,
please contact us below.
30
Firstsource (NSE: FSL, BSE: 532809, Reuters: FISO.BO,
Bloomberg: FSOL@IN) is a global provider of BPO
(business process outsourcing) services
headquartered in India. We provide customized
business process management to global leaders in the
Banking & Financial Services, Telecom & Media, and
Healthcare sectors. Our clients include Fortune 500
Financial Services, Telecommunications and
Healthcare companies. Firstsource has a global
delivery model with operations in India, the USA, the
UK, Sri Lanka, and the Philippines.
ABOUT FIRSTSOURCE ABOUT ValueNotes
ValueNotes is a full-service market and business
research firm. Since 2000, we have helped a few
hundred customers make better business decisions by
giving them actionable intelligence. Our varied, yet
focused research offerings help serve specific business
needs—market entry strategy, choice of location,
partner selection, competitive intelligence, investment
appraisal, due diligence, marketing communication,
customer need analysis, and knowledge management.
ValueNotes' ability to develop research methodologies
that can be adapted to varied industries or sectors is one
of our core strengths.
Nandita Harendra
Corporate Communications
Tel: +91 20 6623 1700
Email: research@valuenotes.co.in
TM
ValueNotes
James Hill
Firstsource Solutions
Tel: 972-548-7209 | Mobile: 214-684-9356
Email james.hill@na.firstsource.com
Special thanks to Namami Ghosh for the editorial work on this white paper.
Namami Ghosh is an editorial freelancer with about 15+ years of experience in the publishing industry. She has
handled both STM and non-STM work for major international publishers and earned rave reviews in the process.
Some of the prestigious accounts that she has won include Elsevier, Springer,Taylor and Francis – Informa , IBTauris,
GmB Publishing, and Intellect Journals. She started her career withTnQ books and Journals in Chennai, India, and
then moved on to SPi Publisher Services, and later at Integra Software Services Pvt Ltd and is currently a full-time
freelance editor in Pondicherry, India.. A rare breed of copyeditor who is equally adept in both science and
humanities, she is well known for her flair for the English language, an eye for detail, and an untiring zest for
copyediting. Her contact information is ghoshnamami@gmail.com.

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